Consumer Watch: Turn $50 into a fortune

If you have a spare $50 in your pay cheque at the end of the week and think it's not enough to bother saving, think again.

You could knock years off your mortgage or use the power of compound interest to turn it into hundreds of thousands of dollars in a long-term investment such as KiwiSaver.

The Herald on Sunday looked at what $50 a week could have been used for over the past three years.

Based on Morningstar performance report of average returns, KiwiSaver members could have earned an annualised 5.5 per cent in default funds and 8.8 per cent in growth funds over the past three years.

As a result, $50 would have become $8,234 and $8,510 respectively. Some funds returned much higher amounts. Interest was in the double digits in some cases.

If those rates of return continued over the lifetime of the KiwiSaver account, the extra $50 a week would turn into more than an extra $150,000 at retirement in a default fund and more than $350,000 in a growth option.

Sharemarket returns have been very good over the past three years, so $50 a week in an index-traded fund such as smartTENZ, which holds shares in the 10 largest New Zealand companies by capitalisation, would have become $9,087.

It reported returns of 15.3 per cent a year over the past three years.

If you're only five years into paying off your mortgage, topping up a $500,000 loan by an extra $50 a week for just three years would knock 11 months off its lifetime and save you $26,137 in interest over a 30-year term.

These numbers aren't exact because fees will vary and how often interest is paid makes a difference.